Market has more to worry about than the shutdown

The U.S. government can't stay closed forever, so by definition its threat to financial markets is temporary.

Other headwinds, though, could present more lasting damage.

At least three and as many as five challenges face investors once the smoke clears from the bruising Washington battle over funding the government.

"The near-term backdrop for equities has been challenging despite very good reason for optimism looking out the next 12-15 months," Tobias Levkovich, chief U.S. equity strategist at Citigroup, said in a note to clients.

Concerns break down into three areas: Uncertainty surrounding the direction of monetary policy, the current government shutdown battle as well an even bigger fight looming over the debt ceiling, and the dim outlook for third-quarter earnings season.

In addition to those core concerns—essentially the usual suspects strategists have been bemoaning for months—there are others: Some substantially weakening technical factors, as well as an economy that has underperformed and perhaps even ratified the Federal Reserve's decision not to begin cutting back on its monthly bond-buying program.

All told, Levkovich thinks the damage to the market is unlikely to be more than a garden-variety 7 percent pullback that would take the S&P 500 down to the 1,600 range.

But Mark Arbeter, chief technical strategist at S&P Capital IQ, thinks the hit could be even harder if chart indications hold up.

"We are raising the yellow flag for the stock market as the last two S&P 500 highs were not confirmed by weekly momentum," he said in a note. "In addition, the slopes of the last three rallies have been very steep, looking more emotionally driven to us than technically or fundamentally driven."

At least three indicators Arbeter follows indicate the 2013 rally has moved too sharply to the upside without a meaningful break.

Combined with a head-and-shoulders formation on the S&P 500 chart, market behavior looks a lot like it did in late 2010 and early 2011, conditions that led to a sharp market decline that Arbeter thinks could hit 12 percent.

That would take the stock index closer to the 1,530 neighborhood.

In order to resist that type of decline, the market will have to resist the pressure of conflicting economic signals.

Just as it looked like growth was hitting sustainable levels, a batch of indicators last week indicated much work needs to be done.

Of the 22 data releases over the period, 16 came in weaker than forecasts while only four registered positive surprises, according to Bespoke Investment Group.

In fact, the government shutdown may be the least of the market's worries.

The bulls at Piper Jaffray predicted "this turbulence could be a buying opportunity," while John Stoltzfus, chief market strategist at Oppenheimer, pointed out that the market actually rose 1.83 percent and 0.06 percent respectively during the last two shutdowns.

Stoltzfus expects that "even if legislators in Washington fail to come to an agreement over the issues in time to avert a partial government shutdown, it won't be long before legislators on both sides of the aisle feel enough heat from the disapproval and pain felt by the majority of their respective constituencies to make the tenure of any shutdown short."